The Securities and Exchange Commission (SEC) charged Thomas Priore and three of his affiliated firms with fraudulently managing MBS as the housing market was starting to crash in 2007.
The agency claims that Priore, owner and president of ICP Asset Management, caused four multi-billion-dollar CDOs to lose tens of millions of dollars by engaging in fraudulent practices and misrepresentations.
ICP began serving in 2006 as the collateral manager for Triaxx CDOs, based primarily in MBS. ICP Securities, ICP’s affiliated broker-dealer, and Institutional Credit Partners, its parent company, are also being charged by the SEC, according to the agency’s official complaint.
The SEC claims that ICP and Priore directed trades in excess of a billion dollars for the Triaxx CDOs at prices that they knew to be inflated.
Priore’s actions caused ICP to profit and protected other ICP clients from realizing losses, while Triaxx CDOs continually overpayed for securities. The prices often exceeded market prices by substantial margins, according to the SEC.
ICP and Priore allegedly caused the CDOs to make many prohibited investments without obtaining approvals, and misinterpreted those investments to the trustee of the CDO and to investors. ICP inflated the prices in order to collect millions of dollars in advisory fees from the CDOs.
There are also allegations of undisclosed cash transfers from a hedge fund managed by ICP in order to allow another company client to meet the margin calls of one of its creditors. The transfers, according to the report, were later misrepresented to the hedge fund’s investors.
"ICP and Priore repeatedly put themselves ahead of their clients," said Robert Khuzami, director of the SEC's enforcement division. "Instead of acting as fiduciaries, they took advantage of a distressed market to line their own pockets."
"The CDOs were complex but the lesson is simple: collateral managers bear the same responsibilities to their clients as every other investment adviser," George S. Canellos, director of the SEC's New York regional office, said. "When they violate their clients' trust, we will hold them accountable."
